April 18, 2008
On Thursday, the US House of Representatives passed a bill aimed at halting the mass leave of student lenders from the federal loan program. According to The Chronicle of Higher Education, more than 50 lenders have left the Federal Family Education Loan (FFEL) Program to date. The growing departure has left families fearing that students will have no one to turn to for financial assistance once their Pell Grants and savings run dry.
To lessen the plight of FFEL lenders and students who depend on them for financial assistance, the bill would allow the Secretary of Education to purchase loans student lenders were not able to sell to investors. By pouring money into the loan market, the Department of Education would enable student lenders to use their capital for issuing new loans rather than paying out the original ones.
The new bill also addressed the lender of last resort, an emergency plan wherein guaranty agencies would be forced to lend money to students who were turned away by other lenders. Under the new plan, the Department of Education would have permission to advance funding to the agencies if need should arise.
To make the transition from the FFEL to the lender of last resort loan program easier on students, loans would be petitioned for on a college by college basis rather than a student by student one. Based on previous outlines of the untested program, students in need of a lender of last resort loan would have had to seek permission from the Department of Education and prove that at least two lenders had turned them down before receiving money.
A bill similar to the House version was introduced but not yet addressed by the Senate. Before the ideas are implemented, both the House and the Senate will have to iron out differences and send the final version to the president for approval.
April 22, 2008
To alleviate the affects of the intensifying credit crunch, Sallie Mae has been lobbying for government assistance. In past months, student lenders have been struggling to find buyers for both their loans and their loan securities. Sallie Mae, the largest student lender in the business, has turned to the government for assistance, asking that the US Treasury assuage loan market tensions by purchasing their securities.
In yesterday’s PBS Nightly Business Report, specialty finance analyst Sameer Gokhale and student loan expert Tom Stanton weighed in on the potential effects of such a move. According to Sameer Gokhale, a quick infusion of cash from the Treasury would, “help all of those lenders and ultimately result in a smoother flow of capital back into the student loan system.”
Tom Stanton took a different approach claiming that federal intervention was not yet necessary. “In its last year as a government sponsored enterprise, Sallie Mae made something like 73 percent return on equity, a very generous return. There’s no need at this point to go back to the government and get support,” he stated.
Even if student lenders continue to drop out of the government’s FFEL program and assistance such as that requested by Sallie Mae is not offered by the Treasury, students will have federal student aid resources to rely on. A Department of Education lender of last resort measure wherein the government would act as a lender to students denied loans by other lenders would prevent financial catastrophe, but according to the Nightly Business Report Correspondent Stephanie Dhue, resorting to such a plan would be more time consuming than enhancing funds for the one already in place.
The lender of last resort is yet untested, and, although details are being addressed by Congress, setting up the new program could be painstaking for schools. However, with the Chronicle of Higher Education citing more than fifty FFEL student lender departures, the program may be put into action regardless.
May 2, 2008
After passing the Senate and the House in varying formats, a compromise was reached on legislation that would help lenders stay afloat in a troublesome student loan market. The Ensuring Continued Access to Student Loans Act of 2008 was sent to the President yesterday, and rapid approval is expected.
If signed into law, the bill would give the Secretary of Education the right to buy loans from struggling lenders, thus providing them the capital needed to offer new student loans. Worried that lenders may continue to depart from the Federal Family Education Loan (FFEL) program—as fifty have already done—legislators have been scurrying to provide financial assistance before the school year begins. Though the law would only serve as a backup plan, the hope is that knowledge of a federal cushion would make both lenders and students more willing to engage in business.
To decrease student dependence on private lenders, ones generally offering loans options that are more expensive and less flexible than those offered by FFEL lenders, the maximum sum a student could borrow from the government was also increased. According to The Christian Science Monitor, the caps on unsubsidized loans available to students of any income level would increase by $2,000 for each school year. Dependent students would now be able to borrow up to $31,000 for their undergraduate education.
June 6, 2008
June 19, 2008
The House of Representatives plans to vote today on the latest version of the GI Bill, a law aimed at increasing the college financial aid awarded to veterans of the Iraq and Afghanistan wars. The Associated Press stated that Congress and the White House have reached an agreement on the bill's provisions, and that approval by the House and the President is expected.
Initially, the members of the House expressed disapproval of a major provision that would pay for not only veteran needs, but also for the war in Iraq. Rather than pass both portions of the bill as was done by the Senate--based on its version--the House ignored the Iraq allocation and agreed to set money aside for veterans pursuing a college education.
When the bill came back to the House for revision, a new agreement was settled upon, and approval of Bush’s request for an additional $162 billion to pay for the wars is expected. As before, the House has agreed to offer veterans who participated in the war for at least three years enough money to cover the costs of tuition at the most expensive college or university in their state, with additional funds to cover living expenses. The value of maximum benefits will more than double the current contribution for each veteran's college education, reported the Associated Press.
Though most agree that some additional funding should be awarded to keep up with the increasing costs of a college education, ones that are rising at rates that outpace inflation, some worry that too much was being allocated for the cause. Conservative Democrats have expressed concern that the bill could not be covered by cutting funding to other sectors, and that the bill was irresponsible considering the nation’s financial circumstances.
June 26, 2008
On Tuesday, a Senate panel approved a budget that would increase, among other things, the Pell Grant funding for the 2009 school year. Currently, students who demonstrate financial need—as determined by a Department of Education's FAFSA calculation—can receive no more than $4,300 in Pell Grant money, but not all eligible students receive the full sum. For the upcoming year, the Pell Grant cap will be $4,731. If the Senate panel’s budget is approved by the Senate Appropriations Committee and by the Senate, students could be eligible for up to $4,800.
According to The Chronicle of Higher Education, the Senate panel’s bill would also provide new funding for the TRIO program, a seven-part financial aid initiative created to aid students from disadvantaged backgrounds and those facing circumstances that might hinder their academic pursuits. Additionally, it would provide colleges and universities with more money to pay for the Perkins Loan forgiveness program, one wherein colleges cancel the loans of students who enter select public service fields.
Today, the new initiative will move from the Senate panel to the Senate Appropriations Committee, and, if approved, it will be voted on by the Senate. Any differences between the Senate and House versions will have to be ironed out, and, only then, will President Bush have the option of signing.
July 1, 2008
Despite an initial House split over some of the bill’s provisions—an incident which nearly doomed approval by the House—an agreement on the veteran college aid bill was reached by both Congress and the President. On June 30, President Bush signed into law the bill which would, among other things, provide veterans of the Iraq and Afghanistan wars additional assistance in affording a college education.
The new law—similar in content to the WWII GI Bill—will call for an increase in the college financial aid awarded to troops who have served in either war for a minimum of three years. Sufficient assistance to pay for the most expensive public college or university in their respective states will be available to the veterans. Those who are eligible will also receive a monthly stipend to offset housing costs and other college-related expenditures.
The legislation will more than double the federal funding veterans previously received for a postsecondary education. Even those who are not currently planning for college can benefit as the money may be transferred to a veteran's child or spouse.
Perhaps the more controversial part of the bill was that which allocated $162 billion to the wars in Iraq and Afghanistan. According to ABC News, the new funds would bring the total amount approved for war expenditures to about $850 billion over the last five years. In reference to the bill, President Bush stated that, "Our nation has no greater responsibility than to support our men in women in uniform - especially because we're at war."
January 27, 2009
It's looking like federal student financial aid will be increased in the forthcoming economic stimulus package, at least based on the legislation presented in each house of Congress in its current form. While the House stimulus bill contains more aid for education, the Senate bill also proposes higher education tax benefits and increases in Federal Pell Grant funding.
The House bill promises:
The Senate bill appropriates:
The House bill also includes money to improve financial aid administration and further assist student loan lenders, while the Senate bill will allow computers to be counted as education expenses towards which 529 plans can be used. The bills are facing some Republican opposition, especially regarding education spending, as it's been argued that construction projects and increases to student financial aid will not directly and immediately benefit the economy. As Congress and the White House continue to hash out the details of these bills, amounts are likely to change. But for now, it appears that colleges and college students may receive a little extra financial aid from the government this year.
February 12, 2009
The Senate passed their version of the economic stimulus bill Tuesday, and by late afternoon yesterday it was announced that a compromise had been reached between the House and the Senate. The compromise bill includes less funding than either version--$789 billion as compared to $820 or $838 billion, and one of the areas that faced cuts was education.
While the final draft of the stimulus bill has not been released--or necessarily written--yet, some details are emerging in media coverage. It appears that a Pell Grant increase has made it into the final draft, though the exact amount is still unknown. Federal Work-Study also receives a funding boost, though it's also unclear whether it's the full $490 million appropriated by the House. The $2,500 tuition tax credit has also survived, as have several other tax credits not related to education. Proposed increases to Perkins Loans and unsubsidized Stafford Loans appear to have been axed from the conference committee's version of the bill. States will receive some money to offset educational expenses and aid in school construction and renovation, though not as much as the House had appropriated.
More details will likely emerge over the next couple days as the bill makes its way back through the House and Senate for final approval. The stimulus package could be signed by President Obama as soon as Monday. While the stimulus will provide some help to most people attending college, it's not too late to find other ways to boost the funding to your own college education. Conduct a free college scholarship search to see what financial aid is out there.
September 15, 2009
According to newly released data, default rates on federal student loans continued to climb in 2008, reaching a nine-year high of 6.7 percent, most likely as a result of the recession. The annual cohort default rate, released by the Department of Education on Monday, covers federal student loans that went into repayment between October 2006 and September 2007 and had gone into default by September 2008.
The 2007 cohort default rate was 1.5 percentage points higher than the rate for the previous year, as significant increases took place across the board. Defaults were higher in the bank-based Federal Family Education Loan (FFEL) Program than in the Federal Direct Loans Program, which is typically the case, but the discrepancy between the two grew this year. A total of 7.2 percent of loans in the bank-based system were in default, compared to 4.8 percent of the loans in the Direct Loans program. he numbers for 2006 were 5.3 and 4.7 percent, respectively.
Much of this discrepancy can be attributed to a higher percentage of students at proprietary schools participating in the FFEL Program, as these schools carried a default rate of 11.1 percent, compared to rates of 6.0 percent and 3.8 percent at public and private colleges. Still, the lower default rate in the direct lending program is likely to be brought up as Congress debates moving all lending from FFEL into Direct Loans.
Default is defined as failure to make payments on a student loan according to the terms of the master promissory note the borrower signed, and federal student loans are considered in default only after several months of missed payments. This means that 6.7 percent of students in this cohort had stopped making payments for 270 days or more within 1-2 years of their first loan payment coming due. It's likely that the cohort default rate numbers released paint an optimistic picture of the number of borrowers currently having trouble making payments on student loans.
New repayment options may help troubled borrowers, though, and several have been introduced in recent months. One is the federal Income-Based Repayment Plan, which allows students to make payments they can afford and forgives all remaining debt after 25 years. Borrowers worried about repayment can also look into loan forgiveness programs offered in exchange for public service, which have been expanded under the Higher Education Act and national service legislation.
The best way for students to avoid the prospect of defaulting on loans is to limit borrowing as much as possible. Put some serious effort into a scholarship search, and consider affordability when doing your college search, as well. Practices such as keeping your options open and landing a scholarship can go a long way towards reducing your loan debt and your risk of being unable to pay once you graduate.
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